California Still Owes U.S. Billions For Unemployment

California, according to recent budget numbers, is slowly recovering from its years of multi-billion dollar budget deficits. The state is on track to turn a $2.5 billion budget surplus at the end of the current fiscal year. But that's general fund money. It does not address another gaping deficit. The state owes almost $10 billion to the federal government for money spent on unemployment benefits.

NPR's Richard Gonzales reports.

RICHARD GONZALES, BYLINE: So how did California wind up owing the federal government $9.7 billion? Just ask Loree Levy, a spokeswoman for the California Employment Development Department. She says the recession, which at one point drove unemployment to a high of 12.4 percent, escalated the demand for benefits.

LOREE LEVY: And I think the overall demand just really hit hard in several states, including California, ended up in a situation where we have been borrowing from the federal government ever since.

GONZALES: When California's unemployment insurance fund dried up in January 2009, the state had to borrow $183 million from the feds. And the state kept borrowing more each year since then, which is why it will end this year $9.7 billion in debt. Meanwhile the state also owes interest on the money borrowed. So in the past three years, taxpayers have paid more than $870 million in interest payments, says Loree Levy.

LEVY: Those are big numbers.

GONZALES: And Levy says fixing the problem is no mystery.

LEVY: You can increase the contributions coming in from employers, you can decrease the amount going out to benefit recipients, maybe by altering your eligibility requirements, for example, or lowering the benefit amounts. Or you can do a combination of both things.

GONZALES: So far lawmakers have been unable or unwilling to do anything to get the bleeding under control, even though everyone in the capitol, business and labor, agree the system needs fixing. There are talks between the various parties, but as of now there are no formal proposals.

But some initial positions have been staked out. For example, the idea of raising taxes comes as employers are seeing a reduction in federal tax credits. That means employers are already paying a higher tax to pay down the debt, says Marti Fisher, a spokeswoman for the California Chamber of Commerce.

MARTI FISHER: It is increasing tax on employers at a time when the economic recovery is fragile. We need to be careful we don't impose high taxes on employers when they are trying to create jobs.

GONZALES: There are some proposals coming out of the business community to reduce unemployment benefits and change eligibility requirements. But those ideas are non-starters with labor.

ANGIE WEI: I think we're hard pressed to look at how do we take more out of the pockets of laid-off workers who are struggling every day, to try to keep their head above water.

GONZALES: Angie Wei is a lobbyist for the California Labor Federation.

WEI: On average, laid-off workers make $296 a week in UI benefits. I don't think anybody can argue that in California you can live on $1100 a month.

GONZALES: This debate comes as the state's Employment Development Department is plagued with a host of other problems, such as an unreliable call center, late benefit payments and a balky computer system.

CURT HAGMAN: You know, right now it doesn't look good for us.

GONZALES: Curt Hagman is a Republican and vice chair of the Assembly Insurance Committee.

HAGMAN: The easiest way to stop the bleeding on this is to get more people employed and less people on the benefits.

GONZALES: But state officials say California's the deficit is so large the system won't self-correct, that even better economic times won't generate enough money to pay back federal government without major reforms to the system.